Category Archives: economy

How Paul Keating transformed the economy and the nation


Carol Johnson, University of Adelaide

The Conversation is running a series of explainers on key figures in Australian political history, examining how they changed the country and political debate. You can read the rest of the series here.


Paul Keating was one of Australia’s most charismatic and controversial prime ministers.

Born in Bankstown, New South Wales, into an Irish-Catholic, working-class and Labor-voting family, he left school before he turned 15. Keating joined the Labor Party as a teenager, quickly honing the political skills that would serve him so well in later life. He entered parliament as MP for Blaxland in 1969 at just 25 years old, and briefly served as minister for Northern Australia in the ill-fated Whitlam government.

He subsequently served as a very high-profile treasurer in the Hawke government from 1983-1991, before defeating Bob Hawke in a leadership ballot in December 1991. In doing so Keating became Australia’s 24th prime minister, serving until John Howard defeated him in the 1996 election.

To Keating’s supporters, he is a visionary figure whose “big picture” ideas helped transform the Australian economy, while still pursuing socially inclusive policies. To his conservative critics, Keating left a legacy of government debt and rejected “mainstream” Australians in favour of politically correct “special interests”.

He was a skilled parliamentary performer, renowned for his excoriating put-downs and wit.

Keating played a major role in transforming Australian political debate. He highlighted the role of markets in restructuring the economy, engagement with Asia, Australian national identity and the economic benefits of social inclusion.

Economic rationalism

Keating is remembered most for his eloquent advocacy of so-called “economic rationalism” both as treasurer and later as prime minister.

Under Hawke and Keating, Labor advocated free markets, globalisation, deregulation and privatisation, albeit in a less extreme form than the Liberals advocated. For example, while Labor introduced major public sector cuts, it attempted to use means tests to target the cuts and protect those most in need. Nonetheless, Hawke and Keating embraced the market far more than previous Labor leaders had.

Along with New Zealand Labour, Australian Labor became one of the international pioneers of a rapprochement between social democracy and a watered-down form of free-market neoliberalism. Years later, British Prime Minister Tony Blair, who had visited Australia during the Hawke and Keating years, was to acknowledge the influence of Australian Labor on his own “Third Way” approach to politics.

The Hawke cabinet in 1990, with Keating again as treasurer.
AAP/National Archives of Australia

Keating justified his economic rationalism on the grounds that the Australian economy needed to transform to be internationally competitive in a changing world. To avoid becoming one of the world’s “economic museums” or “banana republics”, in Keating’s view, there was no alternative but to embrace his economic rationalist agenda.

Trade unions and the ‘social wage’

At the same time, Keating argued that his economic policies would avoid social injustices. This contrasted with the outcomes of the extreme economic rationalism of the Thatcher and Reagan governments.

Unlike in the UK or US, where anti-union policies were pursued, the Labor government was prepared to work with the trade union movement to introduce its economic policies. Under the Accord agreements, trade unions agreed to wage restraint, and eventually real wage cuts, in return for government services and benefits.




Read more:
Australian politics explainer: the Prices and Incomes Accord


Hawke and Keating referred to this as the “social wage”. They claimed the resulting increased business profits would encourage economic growth and rising standards of living.

Social inclusion and economic growth

Keating saw his economic policies and progressive social policies as compatible. Increased social inclusion would contribute to economic growth.

Drawing on Hawke-era affirmative action legislation, Keating argued improved gender equality would mean women could contribute their skills to the economy.

Keating was also a passionate advocate for reconciliation with Indigenous Australians, including acknowledging the injustices of Australia’s colonial past and facilitating Native Title. He envisaged an Australia where Indigenous people would benefit from sustainable economic development, cultural tourism and could sell their artworks to the world.

National identity, Asia and the republic

In Keating’s ideal vision, Australia would engage more with Asia and benefit from the geo-economic changes occurring in the Asia-Pacific region.

Then Opposition Leader John Howard accused Keating of rejecting Australia’s British heritage. In fact, Keating acknowledged many positive British influences on Australian society. However, he argued that Australia had developed its own democratic innovations such as the secret ballot long before Britain accepted these. He also suggested Australian values had become more inclusive as a result of diverse waves of immigration.

Consequently, it was time for Australia to throw off its colonial heritage, including the British monarchy, and become a republic. Keating believed that doing so would enable Australia to be more easily accepted as an independent nation in the Asian region. He established a Republic Advisory Committee as part of preparations for a referendum on becoming a republic.

Keating’s legacy

Australia’s greater relationship with Asia has had major benefits for the economy, although Keating underestimated the downsides of increased competition. Recently, he complained about what he sees as excessive security fears in relation to China and their impact on Asian engagement. The republic remains unfinished business.

Keating’s vision has also left some unintended consequences for Labor today. Despite his patchy record in achieving them, Keating argued that both tax cuts and budget surpluses were important, even at the expense of public sector cuts.




Read more:
Vale Bob Hawke, a giant of Australian political and industrial history


Consequently, it became harder for Labor leaders to make a case for deficit-funded stimulus packages when needed (as Kevin Rudd tried to do during the Global Financial Crisis). Similarly, it became harder for Labor leaders to argue for increased taxes to fund a bigger role for government, as Bill Shorten attempted during the 2019 election.

In addition, as I argue in a recent book, Keating-era policy contributed in the longer term to poorer wages and conditions for workers. Labor is predictably loath to acknowledge this. Keating also underestimated the detrimental impacts of economic rationalism on other vulnerable groups in the community.

The 2019 election result suggests many Australians no longer believe Labor governments will improve their standards of living.

Rather than the prosperous brave new world he envisaged, parts of the Keating legacy may have made things harder for subsequent Labor leaders. Nonetheless, Keating remains a revered figure in the Labor Party and one of its most memorable leaders.The Conversation

Carol Johnson, Emerita Professor, Department of Politics and International Relations, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.


How will the coronavirus recession compare with the worst in Australia’s history?



State Library Victoria

John Hawkins, University of Canberra

In a normal year we would be weeks away from the May budget and the official forecasts for the financial year ahead.

This year there will be no official forecasts until October 6, the date of the postponed budget.

It might be just as well.

The finance minister Mathias Cormann says it is nigh impossible to make realistic and credible forecasts in the current environment.

He might also be worried that publishing negative forecasts creates the risk of self-fulfilling prophecies. (It’s an important difference between economic and weather forecasting – predicting rain does not make rain more likely.)

But on Tuesday Treasurer Josh Frydenberg saw fit to release details of Treasury forecasts of a 10% rate of unemployment, which he said would have been 15% were it not for the JobKeeper allowance, so such concern can’t be universal.




Read more:
2020 survey: no lift in wage growth, no lift in economic growth and no progress on unemployment in year of low expectations


Even before COVID-19, the Australian economy was tepid, with the bushfires and weak wages growth dampening consumer spending.

Now the cat is out of the bag.

Overnight the International Monetary Fund released shocking updated forecasts. Australia’s 2020 recession will dwarf those that came before it.


Australian calendar year economic growth

Growth through the year to December, IMF through-the-year-forecasts for 2020, 2021.
ABS National Accounts, IMF World Economic Outlook April 2020

The IMF expects real gross domestic product to shrink by 7.2% throughout 2020.

This is much larger than the falls in real GDP in the early 1980s drought-related recession (2.2% throughout 1982) or “the recession we had to have” (1% in 1991).

To find larger falls it is necessary to go back to the depressions of the 1890s and 1930s.

The Great Depression is one parallel

Australia’s 1890s depression was the result of a global slowdown, the bursting of a speculative property bubble (particularly in Melbourne), bank failures and the prolonged Federation Drought.

Australia’s 1930s Great Depression also followed some speculative excesses but was primarily a response to the global economic slump.

Both depressions predated the acceptance of Keynesian economics in which it was understood that the best way to deal with a decline in private spending was for governments to increase public spending.




Read more:
Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won


Instead, back then, governments tried to get their budgets to balance by cutting their spending, making matters worse.

Those depressions occurred well before statistical agencies compiled national accounts.

But a survey of retrospective estimates I did with Robert Ewing suggested that during the Great Depression real GDP may have contracted by 10% to 20%.

The Asian Economic Crisis is another

A more recent parallel to the size of the current fall in Australia’s GDP is the experience of some of our neighbours in the 1997 Asian financial crisis. In 1998 it brought about huge falls in real GDP in Indonesia (13%), Thailand (8%), Malaysia (7%), Hong Kong (6%) and South Korea (5%).

The current contraction has been unusually rapid and it is hoped that the recovery will be too.

The IMF predicts Australia’s GDP will expand by 8.4% in 2021 after falling 7.2% in 2020. It believes we are in the worst of the recession now and the recovery will begin in the September quarter that starts in July.

In year-average terms that understate the size of swings the IMF expects real GDP to shrink 6.7% in 2020 compared with 2019 and then to grow 6.1% in 2021 compared to 2020.




Read more:
The next employment challenge from coronavirus: how to help the young


It has revised down its forecast for global growth this year from an increase of 3% to a contraction of 3%. (By contrast, during the global financial crisis global GDP slipped by only 0.1%)

What it terms the “Great Lockdown” is the worst global economic scenario since the Great Depression.

Worse outcomes “possible, even likely”

The US economy should contract 5.9% this year before bouncing back 4.7% in 2021. China’s economy should barely grow in 2020 (1.2%) before bouncing back 9.2% in 2021.

Output and incomes in emerging economies are predicted to return to pre-pandemic levels in the second half of the year. The advanced economies generally won’t return to where they were until the end of 2021.

These are forecasts that might prove optimistic. Depending on conditions and programmes in place in each country, it is likely many business will not survive and many consumers will decide to remain cautious about their spending for some time.

IMF chief economist Gita Gopinath warns

much worse growth outcomes are possible and may be even likely – this would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment.

Rarely has the trajectory of a downturn been harder to forecast.

Much will depend on the virus itself, on the way in which countries adjust their restrictions to deal with it, and on us. At the moment few of us are feeling good.The Conversation

John Hawkins, Assistant Professor, School of Politics, Economics and Society, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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